Graphic: How Apple is gaining on Microsoft

is Zune still around? I could not see it in any shops!!! MS — is it another web TV kind of failure?

At risk of turning this fine blog into a private chat room, and therefore with the grace of the editor, I would respond to the excellent post by Shayaan.

Much of what Shayaan says is true, and all of it worth consideration.

I concede that everybody “steals” in order to innovate. It is an ugly, partisan choice of a word. However, the point does remain that Apple are far better at this activity than Microsoft. Hence, one can say that Apple leads, and microsoft follows.

I differ on the point that the difference between the graphic and sound editing performance is not related to the OS. Here is why: My own rage against microsoft stems from losing work. That’s it. There were simply too many times when I sat down at a PC and did several hours work, and then lost the lot, because the system froze. If your time is valuable, this matters. I suspect this is a common reason for the ill feeling towards microsoft. Now, again, this probably only affect people who get paid for performance, and not by the hour.

Regarding the non-friendly development environment, I agree completely, and believe that this area of Apple’s public relations is a matter of serious concern. If you want to see where Apple is going bad, look here. I put this down to the unholy alliances that Apple has formed with communications companies, which are not much better than tax farming operations. Much as I admire folk at Apple, I could put some heads on pikes for the way I have been treated by the development crowd in that company. How serious this is for the longer term, I leave for others to comment. I simply don’t know.

Regarding the extension of the OS towards enterprise, and away from stand alone personal computers, this point must also be conceded. HOWEVER, Apple are working on it. They are targeting “enterprise for the rest of us”. Whether they will succeed is an open question. Again, here we strike the unfortunate precedent set by the people at Apple who are handling the development community. If that is the quality of the leadership in the Enterprise initiative, it may very well be that Apple have goals beyond their capacity. A brilliant design team can’t magically conjure an Enterprise framework; it is going to take business knowledge. I think we need to see change in leadership here, or there are problems ahead. If these problems are solved, however, there is huge room to grow. That is one thing Microsoft does not have.

So, yeah, there are serious challenges for Apple. Most crucially, they risk becoming blind to their weaknesses through hubris.

I have to laugh when folks think Apple invented all the things it uses, like most of the “innovations” they implement in their OS and iPhone products.

Most of them are outright stolen from other places. Microsoft does the same thing. I don’t see why it’s fine for one company to do it under the guise of ‘innovation’, and then another does it and it’s stealing.

That said, I think Apple has a limited market share because of a few reasons. First and foremost, it’s a limited tool. You can’t do everything on it you can do on a Windows machine, but conversely you can do EVERYTHING on a Windows machine you can do on a Mac. In terms of graphics editing or sound editing, Apple is better but not because of the OS — because of the software that’s available.

Which brings me to point #2, that Apple does not have a friendly development environment, especially for the iPhone/iPod Touch. Microsoft focuses almost all of their resources on easy development, and to that part they have largely succeeded.

Lastly, Apple has no supporting products other than an iPod or iPhone that tie into the OS. Microsoft has built a community of software, first starting with the OS, then adding business tools like BizTalk, then database components like SQL Server, then productivity applications like Office, which ALL tie into other products like System Center for monitoring and application deployment, and further into Sharepoint for document collaboration and storage, and it goes on and on. With Apple, you have simply a pretty OS which doesn’t extend at ALL. Apple has shown no innovation in the area of moving to make the computer part of something ‘larger’ than itself, be it a business, a network, a community or anything else. And that’s it’s biggest killer.

Microsoft will continue to do well, but Apple must continually ‘innovate’ (or steal) in order to maintain any positive market share. And when it comes long enough that people simply don’t buy Steve Jobs coming out and introducing a product like the Macbook Air (which is total garbage), Apple will be in for a very tumultuous fall. They need to spread their wings outwardly, not try to go faster straight ahead as their limited product offering will prevent them from making the ‘long haul’ that Microsoft is fully committed to doing.

For the record, I do like Apple, and my iPhone is great — I just can’t buy into the marketing and hype like other folks can. An OS is a TOOL, it is a means to an end — and if somebody can offer you a tool that is just as good but cheaper — then there’s no benefit for Apple to stay in the market at all.

There is a fantastic new story on Windows 7 on the BBC. A reporter goes to a tech trade show and asks to see the wonders of the new improved microsoft OS. The “big innovation” is that you can resize pictures by using your fingers. With a pinch gesture.

BUT… it is not an Apple rip off, because it is on a desktop, NOT on a phone. Sure, the pinch gesture is exactly the same idea, but hey! This is a DESKTOP. Completely different.

The most hysterical thing is, of course, that it doesn’t work. The guy tries to show the feature and for the first six times he tries the pinch gesture, nothing happens. He says “Oh well, you get the idea.”

Yeah,. We get the idea, alright. Microsoft are so devoid of ideas that they steal something useful on a phone, and put it on a desktop. Then it doesn’t work.

“Microsoft has deferred revenue, but it’s not the same as Apple’s. What Microsoft books under deferred income are subscription contracts that mean sure payments in the future (almost sure: customers may go default or be blocked out of the contract by trade embargos for example). However, the payments are not yet received.

Apple, on the other hand, has already received payments for 13 million iPhones sold over the last 15 months and has so far only booked about 20 % of those payments. So Apple’s deferred revenue (at least as far as they broke it out in last week) is real money in the bank, Microsoft’s is not.

I would like to hear some accountant comment on that.”

If I’m correct we’re talking about revenue and not cash. When to recognize revenue. Aren’t all Iphones subsidized by Att, so apple has to receive money from att? how do you guys know that att doenst pay over a 2 year period to apple for each iphone sold? so att could withhold money from apple?

The people who think the comparison is not apples to apples, because MS also uses GAAP accounting and has recurring subscription sales, don’t really understand the situation.

The problem Apple is addressing is the TRANSITION time when GAAP does not approximate non-GAAP. This occurs in the period when you go from no deferred sales, to having deferred sales. After, the transition, in about 8 quarters, the GAAP numbers will look alot like the non-GAAP ones. The difference is the GAAP numbers apply a smoothing effect on sales, as they average over 2 years.

Even if MS uses GAAP and has subscription revenues, they have already gotten past the transition period. There’s no significant difference between MS’s GAAP and non-GAAP numbers.

So, the comparison is valid.

Do you mean that NOT making junk can be profitable? WHO KNEW??????

One major thing forgotten is that MS is a long standing stable stock that pays back dividends. They are not the growth powerhouse they were back in day. This is what happens to all mature companies (Intel and Cisco are two other good examples). Google and Apple will eventually hit this place as well. Both companies are extremely overvalued right now no matter what anybody says.

That being said I’d like to see how Apple’s growth charts now compare to Microsoft’s growth charts in the past. Then we’d actually have a good comparison.

This is scary because Apple is so much more technologically advanced.

http://sciencedefeated.wordpress.com/

” Lookup what constitutes a monopoly, and since they are not technically illegal anyway, lookup what constitutes abuse of monopoly position. MS was and probably still is guilty of abuse.”

The key word here is “probably”. Because even if you look up what constitutes a monopoly, and while you are at it look up what constitutes abusing a monopoly, you are going to have look it up again tomorrow.

Because, as this poster implied, monopoly laws are written in the sand.

The EU has shone a huge white light on the subject, and the result is that everyone is now blind. Essentially, whether you have a monopoly depends on how you (or rather ‘they’) define the market. And whether you abuse that monopoly depends on whether you are defined as having a monopoly, simply because precisely the behaviour that is required of directors in small companies is declared illegal in large companies. So if you are competitive, secretive, you don’t share technology, you work to build commercial advantages etc etc.

All these behaviours are required by law for the directors of small companies, and they are illegal for monopolies.

So it becomes crucial to know how the market is defined. Is an Ipod a computer, or a portable music player? Is an operating system software, or is it an operating system on personal computers?

As with all feudal systems of market control, the whole game comes down to having friends on the board of wise men who define the rules as the game is being played.

Microsoft has deferred revenue, but it’s not the same as Apple’s. What Microsoft books under deferred income are subscription contracts that mean sure payments in the future (almost sure: customers may go default or be blocked out of the contract by trade embargos for example). However, the payments are not yet received.

Apple, on the other hand, has already received payments for 13 million iPhones sold over the last 15 months and has so far only booked about 20 % of those payments. So Apple’s deferred revenue (at least as far as they broke it out in last week) is real money in the bank, Microsoft’s is not.

I would like to hear some accountant comment on that.

Dan,

Are you for real, or are you doing some kind of a caricature of a bigot?

Apple’s offered employee benefits for same-sex partnerships for quite a few years now. If you can’t handle them taking a stand in favor of human rights, then I’m sure we shareholders can somehow find a way to do without your business.

Joe, Apple won’t come under the microscope of DOJ for HAVING a monopoly, but they would if they were ABUSING their monopoly. In that case it would be just like Microsoft.

And I think Apple is doing just fine by NOT selling OSX to generic PC makers, at any cost.

And third, I’d be content if Apple got to 20% and just stayed there, not selling out to enterprise. Once Apple starts catering to the needs of enterprise then they are no longer catering to mine. Yes, just like Microsoft.

See, this is why reports are reporters, they cannot make it in the real world to save their lives. How convenient is it for this guy to just convert Apple’s deferred income and tackle it to the Apple column without doing the same thing for Microsoft! What an imbecile!

Microsoft has even longer term plans than Apple does on most of it enterprise agreements. The typical EIA at Microsoft is 3 years long, some of them even longer, and like Apple, Microsoft defers this income as well.

Next time you try to make fuzzy math and creative statistics, at least try to compare apples to apples, no pun intended. In the meantime, keep on writing some more garbage.

@JO”As Apple market share grows, there is a very real danger that it could find itself under Department of Justice’s microscope for having a monopoly…”

Uh, no. Lookup what constitutes a monopoly, and since they are not technically illegal anyway, lookup what constitutes abuse of monopoly position. MS was and probably still is guilty of abuse.

The market MS is in is 90% of “IBM/Windows Compatible” computers. This market consists of thousands of manufacturers. MS has a hold on everyone of them — MS dictates licensing terms that unfairly keep competing software off these systems. Netscape Navigator was only one casualty. MS keeps competition off the desktop and other OS’s off the PC by threatening its OEM “partner” (read prisoners).

Apple? Even if its not even 10% market share grew to over 50, I don’t believe it would ever act like MS. And having “vertically integrated products” (hardware and software) does not constitute a monopoly anyway.

Apple refuses to license to Dell, so how can Apple be accused of abusing a monopoly, when MS is accused of it for the very opposite? Oh, maybe Dell should be under the microscope for bundling Dell monitors with their PC’s and not letting HP have a crack at this “monopoly” — the Monopoly of Dell hardware. There is not an “Apple Mac” market to monopolize, just like there is not a “Ford” market for Ford to monopolize. There is a car market. Whatever the market share of Ford, it’s not abusing any kind of monopoly unless it can somehow dictate that Ford parts have to go in the automobiles from other manufacturers.

If we are looking at Microsft vs Apple, then one huge destructive piece of technology is being overlooked: Service-oriented Architecture, and the seployment of software and services over the web.

People are talking about online “operating systems”; Google Apps’ method of software deployment with considerably cheaper licensing is seen (as a concept) to rival Microsoft and Office in the enterprise world; Microsoft lives in interesting times. Here’s an article investigating this: http://thewebserviceblog.co.uk/2008/10/09/soa-microsoft-google/

I have two unrelated comments

(1) As Apple market share grows, there is a very real danger that it could find itself under Department of Justice’s microscope for having a monopoly, just as happened with Microsoft 10 years earlier; Apple must learn from Microsoft’s mistakes. Pystar provides a wonderful opportunity. Apple should sell OS X to those people, AT A DIFFERENT INITIAL COST AND UPGRADE COST; If Snow Leopard goes for $129 for Mac users, then sell it to Pystar box people for $329–talk about killing two birds with one stone; capture a nice chunk of revenue from people who are willing to buy cheap boxes, AND minimise future tussles with the DoJ

(2) Many readers have noted that Apple will have a difficult time going beyond 10-20% market share; there are various reasons for that, but bottom line is business; the lion’s share will come when Apple starts to actively pursue enterprise, where blocks of 1000 boxes are sold at a time. With the cash it has and its enormous engineering talent, Apple could purchase VMware and ready itself for the future onslaught on Windows enterprise; when they unleash that monster, the Microsoft empire will fall

Constable Odo, you will never get out of Queens if you keep thinking like that.
So, if MS will slash the price of Windows in half, Mac users will throw their Macs, just to save few tenths of dollars?!!!
Laughable!
The people that bother to save few bucks on an OS, will never pay for any operating system and are the same people who buys the pirated copies of Windows and will never be Apple potential customers.
But, how millions of pirated copies of Windows are going to increase revenue or market shares for Microsoft?

THe guy who was supposedly talking up MS points out exactly why MS is failing - the only place where people want an MS OS is when they are buying a “cheesy PC.” Or that bootlegging MS OS is the only price people are willing to pay - on the other handn, that is why Apple has 66% of the $1k marketplace (NPD source). Apple makes a minimum of $129 when it sells an OS and up to $3,000 when it’s bundled with a Mac … MS? Sure, they sell a lot of $40 OEM versions but how are those Vista sales when people actually have to pay “real” money? Very poor because the perceived value of MS OS is either $40 or zero … not to mention that MS should just stick to the enterprise instead of spening $20 billion in loses on the Xbox or $30 billion to prop up Steve Ballmer’s holdings …

Apple will never gain a significant share, in fact they may have just shot themselves in the foot. Apple donated $100,000 to the no on 8 (Gay Marrage) campain out here in California.
I’m sick of these companies with liberal management interfearing in politics, Especially the these anti-family issues.

I’ve worked with Apple Computers for over 25 years, since the days of the Apple II. I also work on Windows PC’s.
As of today, I will never buy another Apple product. Furthermore, I will not longer recommend Apple products to my relatives, friends or business associates.

Please join the Apple boycott.

$300 Ipod would make more b/c users could just download that $300 piece of software. Why do y ou think Microsoft is spending so much on anti-piracy?

The revolution has started so don’t be so sure where and how long it will take for apple to really infiltrate the corporate IT infrastructure.

Compare the overall cost to manage a windows pc per year vs. a MAC; and lets see who the real winner is…

It has been very interesting watching the prognostications about Apple over the years.

I’ve lost track of how many times Apple has been declared “dead”.

“Common Wisdom” stated that Apple’s market share would never rise above 5 percent.

Michael Dell said the best thing to do with Apple would be to shutter the company and give the money back to the shareholders.

Why should Apple design and market yet another MP3 player, there are so many on the market already?

Apple has no idea how to compete to the mobile phone
business. The company will be a flea in a market dominated by elephants.

The company obviously alive.
Market share has reached double digits and continues to climb.
Currently Apple could buy Dell with cash.
The iPod has become an icon and continues to lead the market in sales and innovations.
The iPhone has literally redefined the idea of a mobile phone.
Oh and BTW Apple is selling laptop, desktops and servers like hot cakes.
‘Nuff said.

I’m an accountant and this is probably one of the most ridiculous articles I’ve read so far. I am sure that Microsoft has to defer alot of their revenue also and I’m willing to bet that if Microsoft was able to recognize all their revenue immdediately as suggested here for Apple, Microsoft would probably blow Apple’s profits by 10 fold. You have to be able to compare apples to apples, this is the reason accounting rules exist, to be able to have comparable financial statements. You cannot just change one company’s accounting principle for revenue recognition and continue to use it as a comparison against another.

I bought an Apple computer 4 years ago, after having virus’s, malware, spyware, etc destroy my PC, and having to reload the operating system all the time.

I bought a Mac and never looked Back.

I love the company so much, I bought Apple stock at $65, it went up to $200, until the recent stock market melt down, but still doing good at $96.

The company has so much cash in hand, dominates 3 markets and has good management.

@peter

You’re missing the point. It is about profits and revenue!

Apple is earning close to 75% of Microsoft’s revenue and close to 55% of of Microsoft’s profit. That might not seem so earth-shattering until you remember that Apple has only 10% of the market share and Microsoft has 90%!

What these statistics tell you is that Apple has latched on to the two most important brand new markets:

1. Online delivery of content (music, movies, podcasts, etc.

2. Mobile computing.

Microsoft can’t break out of it bastion of Windows and Office.

People, REVENUE is not EBIDA (Profit).

Apple’s revenue is good, but its Profit Margins are nowhere near Microsoft’s as it sells primarily hardware and Microsoft sells primarily software.

Given a $300 iPod or a $300 piece of software, who do you think comes out WAY on top?

Come On…

GJG:

You suggested that with 2 million iPhones in the channel Apple might have a bit of a backlog. I don’t agree with that.

You have to realize that Apple still sold 4,9 million units through to consumers i just 11.5 weeks, or 400k per week. 2 million in the channel are no more than 5 weeks of sales, exactly within Apple’s target range.

I’d even say that they’ll need to stock much more for December (and than go back to 2 million in January).

Get real, people. Apple couldn’t catch MS in ten more years even if MS didn’t build another single OS. The name Microsoft is so deeply ingrained in the world of computerdom, nothing can budge it. You think people around the world are just going to give up inexpensive Windows-powered PCs to buy Apple products.

Do you know how many people want those cheesy little Asus-type netbooks running Windows that cost only $400? The world is filled with people like that. Apple refuses to build or sell products like that. You think the Chinese are going to give up millions of pirated Windows OS’s to run OSX? Hardly. If MS suddenly decided to cut the price of Windows in half, you’d have people throwing their Macs away going back to Windows. This is just the lure of living on the cheap.

Seems to me the main reason people don’t like Macs is they always say Macs cost too much. Not enough bang for the buck. They can build a better WinPC for half the price of any Mac. If the Mac ever gets 20% share of the computer market within five years, they should consider themselves very lucky.

I’m not predicting this. This is just my take on how it appears to me.

If Microsoft had a monopoly like Apple they would be untouchable. Apple sells there own hardware, OS and has very strict controls over software that runs on their system

MS on the other hand only does software. They do not make PC’s so it is a credit to them that they can make so many things more compatible and available to the computer population

MS opened up the world of PC computing for home users and more for gaming.

This is a planned result of the results of the court decisions declaring Microsoft a monopoly.

If it wanted to, Microsoft could squash Apple like a bug! Simple, just build an iPod clone and give away music for free.

Microsoft needs a viable competitor to keep justics and the Europeans off its back.

At least with Apple, Microsoft can sell billions of dollars with of software for it - like it has over the last 20 years with its Office brand.

Neither of these companies are going away. They both dominate 2 different segments of the market (M$ PC’s and Apple consumer electronics). Even though the mac has had some success I don’t see them getting much past 15% market share. Same goes for M$’s attempt to get into Apples music business.

I think both of these companies will grow going forward. Apple probably a little quicker, but I wouldn’t count M$ out. Apple has no presence in the gaming market something M$ is starting to get some traction in.

Take Intel and Sprint with its newfangled WIMAX… an enlargened Wifi range by miles instead of a mere football field… Well, it may be a game changer … Verizon and ATT may be decimated in 5 years.. I will never underestimate Intel , ever!! I rooted for AMD until reccently as I just read its obituary. It is over for AMD… Intel is now free to show its full fangs and it will shake competitors like poor kittens in its fangs…

Apple and Microsoft means nothing to me as far as chips is concerned.. Granted, hardware is a dime a dozen, yet it still rules.. Apple and Microsoft cannot do much about hardware and chips… Chips is the tail that wags the dog!! Once chips changes, anything goes… Apple and Microsoft can disappear overnight… Chips or microprocessors or (gigaprocessors) is the heartbeat of everything… Anybody can rewrite the code lines, but only the chipmaker makes the rule. Although, I dont understand what the heck I am talking about but it just came out of my mind all of a sudden, duh?

The left and right side columns are meaningless in this graphic. The important centre three columns demonstrate that Apple and Microsoft have become much more comparable than people realize as companies. The differences in Revenue and Profits are much smaller than the PC market share numbers imply.

(I’d also caution people to remember that one quarter is relatively meaningless in the big picture. I’d not get too excited when 30% of the iPhone sales basically went to fill the distribution channel. OR DID YOU MISS TIM COOK’s COMMENT???)

What really counts going forward is how much cash flow they’re generating because that’s what is available to develop new products, and/or distribute to shareholders. Microsoft (unlike Apple) actually distributes profits to its shareholders through dividends and stock repurchases. Apple has simply hoarded its cash, and does its shareholders no favours by doing so. Where is their return on their Apple shares??? It’s certainly not in share price appreciation. Certainly $25B of cash is far beyond what Apple needs to sustain its growth.

This will sound cynical, but Steve Job’s appearance on the analyst’s call last week was a blatant attempt to manipulate Apple’s share price so that its shareholders appeared to be getting some return. He’s done it before. (Must be bonus time or someone’s share options are underwater.)

Anyone with some practical accounting knowledge could have told you that Apple was growing like crazy. All you had to do was read its cash flow statements. When the growth in cash flow is twice the growth in GAAP profit for quarter after quarter after quarter, then it’s obvious that the stock analysts know little about what it really takes to run a business successfully long-term or how to really value stocks. Certainly Apple’s CFO had quite clearly (and correctly) pointed this out repeatedly to the analysts in their quarterly calls.

Andy Zaky’s comments in the earlier iPhone revenue bomb article were right on target as to where people should be questioning, and throwing darts. But looking at the cash flow would have told you the same thing for months.

Just so we are all clear here, this is a quarterly report.
Econ 101 must have told you the story of Christmas cards, or even Homer corners the market for Pumpkins?

aaple released its big long awaited new phone. If you really think 75% will be an on going number I suggest you sell the car house wife kids and invest everything on margin in aaple. Otherwise stop being a such a fanboy.

Oh yeah and try making reasonable charts that one is grossly flawed.

These stats bear out Apple’s philosophy.

They make the best products they can.
They make profit on every product they ship.
They do not target the low end, low quality product market.

Thus, with fewer employees, much smaller marketshare, Apple makes nearly as much money as Microsoft.

Wow.

I didn’t word that last sentence in my previous post properly. I should have said, “Projecting Apple’s revenue growth at only half the currently reported rate, the revenue will have doubled, redoubled, then doubled again in about the same period of time.”

“This is a very misguiding statistics.”(sic)

On the contrary, it’s actually quite telling if you understand what it means. Projecting Microsoft’s 9% revenue growth suggests their revenue will have doubled in about eight years. At even half of Apple’s projected revenue growth rate, it’s revenue will have doubled, redoubled, and doubled again in about the same period of time.

Quoting Saket: “Apple infact has a high chance of failing this year because their products are generally luxury products and the free fall in economy and inflation may affect them dearly.”
Maybe. My mother worked for a luxury car dealer in the 30s and he quietly did very well indeed during the that Depression. The truly wealthy carried on as normal, just avoided ostentatious displays of wealth.

Great stuff, Philip.

I’m sure you know, that Marketshare column is so tall, it dwarfs the three middle columns. I’d think putting the marketshare and growth rate columns together in a separate chart would be good; and the three financial ones would be a natural fit in a separate chart, even better.

Balmer is going to go down as the guy who knew just enough, and was well enough connected, to take over Microsoft from Gates, then do nothing with it.

The reality is that he should have been dragged out back of barn when he did that “I love this company” heresy.

He lost his fundamental human rights with that display. He is a disgrace to rich idiotic nerds.

The Apple systems are almost trouble free and the problems of a virus intrusion in the Microsoft sytem and not in the Apple system is now getting out. The iPhone is also sweeping the market place. My next computer will definitely be an Apple.

This is a very misguiding statistics. The last graph shows a comparative gain. For eg, if MS has a 90% market share and it increases to 91%, then their comparative rev growth is 1.11%. However if Apple has a 10% market share and it increases a market share to 11%, then their comparative gain is 10%. Thus, without the knowledge about if the revenue growth is comparative gain or net gain (which is unlikely), the statistics may be very misguiding. Apple infact has a high chance of failing this year because their products are generally luxury products and the free fall in economy and inflation may affect them dearly.

What does the second group of columns from the left represent? i think you need to add a legend for that group.

ex ped: Reposted with legend.

OK - TIM YOU WIN